Afghanistan was taken over by the Taliban after decades of American occupation, training, and funding. Chaos ensued and the drums of war are beating.
However the world responds, investments in companies that rely on government contracts and national defense are likely to benefit over the next decade.
Even if tensions don’t escalate, national defense spending is likely to rise. Heightened alert levels should pad the balance sheets of firms in the defense sector. The U.S. spent $725 billion on national defense in the 2020 fiscal year alone, and that’s likely to ramp up further in coming years.
War profiteering is a historically good bet – investing in defense contractors when Wall Street reopened after the September 11, 2001 attacks that kicked off the U.S. involvement in Afghanistan beat the S&P 500. $10,000 invested back then is worth $97,795, while the equivalent amount in the S&P index would be worth $61,612.
If you’re looking to make money while supporting our military efforts at home and abroad, these are top defense stocks to consider adding to your portfolio.
1. General Dynamics
General Dynamics Corporation (NYSE:GD) is one of the largest defense contractors in the world. This Reston, Virginia-based aerospace and defense corporation is an aviation and aerospace powerhouse on the frontier of innovative defense technology.
It has grown to over 100,000 employees with global sales tracking at over $37.9 billion of revenue by 2020.
Not surprisingly, the pandemic hit the company hard, as it’s a major supplier of aeronautic parts and planes (Gulfstream is one of its divisions) and it depends heavily on silicon chips, which experienced a global shortage in the aftermath.
However, by the second quarter of 2021, the company was back on track with higher sales in combat systems and technologies. The company continues to bet on its defense divisions, and the U.S. Senate’s Armed Services Committee’s 2022 defense budget was already set to add another $25 billion to the fiscal year’s budget.
2. Lockheed Martin
Lockheed Martin Corporation (NYSE:LMT) is a one-stop shop for all things national defense. The North Bethesda, Maryland-based company is involved in aerospace, arms, information security, and more. And its strategic location in the Washington, D.C. area gives it easy access to the decision makers for those lucrative government contracts.
The company grew sales in segments like missiles and fire control. By the end of the first quarter of 2021, the company had a backlog of $147 billion in contract work, compared to $65.4 billion in total sales for the prior year.
Its diversification makes it an integral part of the global military industrial complex. But as diversified as it is in national defense, it’s still heavily invested in the U.S. government, which accounted for 74 percent of sales in 2020.
Boeing Co (NYSE:BA) was facing a major existential crisis as its 737 MAX jet was the target of regulatory heat. BA stock price collapsed as the airline industry was unwilling to order more planes.
Management spent heavily to regain as much corporate and consumer trust by partnering with airlines like Southwest.
By mid-2021, the company showed a 12 percent increase in revenues to $32.215 billion; it delivered 156 commercial planes in the first half of the year. This compared to only 70 planes delivered in the first half of the prior year.
While its aeronautics division is improving, it’s also increasing revenue in defense, space, and security. This gives plenty of room for investors to benefit from this beleaguered defense stock.
4. Northrop Grumman
Northrop Grumman Corporation (NYSE:NOC) is one of the world’s biggest military weapon suppliers. It started skyrocketing in the mid-2010s, jumping from a share price of $65.63 to well over $300.00 per share by the start of this decade. It is deeply tethered to drone warfare, especially in Afghanistan.
While NOC share price had a rocky road, it has shown improvement by 2021. In the first half of the year, it earned $3.23 billion in net earnings, compared to $1.87 billion in the first half the prior year.
Defense spending was down leading into the conflict, but it showed improvement in aeronautics, mission, and space. This fueled the 73 percent increase of income, and there’s room to grow at least another 15 percent as the company plateaued this year.
5. Palantir Technologies
Palantir Technologies Inc (NYSE:PLTR) is less a government contractor than a big data company, but it has close ties to government currently. It’s been largely ignored since its September direct listing, but the data mining firm has support from major firms like ARK Invest.
The company boosted the U.S. government’s data capabilities in the aftermath of 9/11. Its Gotham platform is used by the FDA, FBI, CIA, ICE, and more. And while it’s heavily involved with the government, the firm’s commercial customer base is growing too, accounting for 44 percent of 2020 revenue.
As more commercial businesses learn to leverage this data, the company has a lot more growth potential. Analysts are expecting 35 percent growth this year, versus 30 percent guidance given by the company’s C-suite.
But it has plenty of competing services in the commercial sector, like Salesforce, Splunk, and Tableau. Still, the Afghanistan conflict could inject more life into the firm’s government contracts as intelligence becomes increasingly important.
6. Raytheon Technologies
Raytheon Technologies Corp (NYSE:RTX) is another company focused highlight on aerospace and intelligence services. This led to the company earning $56.68 billion in 2020, despite being grounded by the commercial airport closures around the world.
The result? A value buying opportunity perhaps. The company’s guidance of $65.4 billion in sales for 2021 shows it is on the right path to recovery.
The firm’s biggest problem is profitability depends on the return of demand for it aeronautics products. And the delta variant is likely to create more travel restrictions heading into the winter months. This could mean investors will wait longer than the might hope to reap the benefits of their investments.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.